It’s almost as if the rupee has A good mind to keep cocking a snook at the Reserve Bank of India’s (RBI’s) best intentions to rein its rising march vis-à-vis the dollar. The recent directives on external commercial borrowings (ECB) notwithstanding, the Indian currency appreciated further— the dollar currently quotes at Rs 39.74 to a rupee. This, admittedly, has caused grave concern with the central bank which has now tinkered with overseas investment norms in a bid to halt the rapid rise of the rupee.
Among the salient features, the RBI has doubled the annual remittance limit for individuals to $200,000 and the overseas investment limit for mutual funds by a billion dollars, to $5 billion. “As a measure to increase the openness of the economy, they are welcome steps, but if they are planned as measures to curb the rupee’s Manhattan climb, they may not be successful,” observes Jamal Mecklai, CEO, Mecklai Financial.
He feels that eventually, the RBI will have to come to grips with the fact that it can not control the rupee.
According to a report by Lehman Brothers, the recent directives— designed to encourage outflows in the medium term—are unlikely to have the desired effect on the rupee’s appreciation as the existing limits have still not been fully exploited. The rupee, which was quoting at Rs 44.26 to a dollar at the start of the year, has appreciated by almost 10.5 per cent this year, earning it the title of Asia’s best performing currency.
According to Mecklai, the rupee’s rise is a natural corollary to India’s growing economy; and the RBI should refrain from intervening every time the rupee goes one up on the dollar. In fact, the report by Lehman Brothers predicts the rupee-dollar exchange rate at 39 by the end of 2007 and 36.0 by the end of 2008.
